Google Caught In Transfer Pricing Balancing Act

Senior Editor

The Internal Revenue Service is auditing how Google values software rights and other intellectual property owned by its offshore Irish subsidiary, Bloomberg reported Thursday. The inquiry is focused on the financial arrangements Google subsidiaries YouTube, Postini and DoubleClick have made with its Irish subsidiary to pay for access to its intellectual property, according to Bloomberg. Google told the news agency that the IRS was conducting a “routine inquiry,” but the report highlights the delicate balancing act that U.S. companies face in trying to properly value intellectual property overseas.

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Google’s treatment provides a compelling alternative to the user. It restricts the number of ads shown to only the highest quality ones (you’ll notice that this presentation appeared on a broad query, where there would be sufficient inventory to provide high quality ads). The ads should be just as relevant to the intent of the user as the organic results, and given the query, probably more relevant. The user should be hooked. The presentation of two ads (I’d bet big money on the fact that Google will be testing both 2 and 3 ad presentations above the “more ads” button) gives a ready-made consideration set for the user. We’ve known for some time now that users “chunk off” a result set in groups of 2 or 3 results (maximum 4) and consider them as a group. There are natural visual barriers (the related search suggestions) that reinforce the visual presentation of the top ads as a group. What this means is that the user will judge relevancy, and if the first two (or three) ads pass the test, there’s a high likelihood that the set will be expanded.

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